There’s another tax threat being thrown at landlords by the government – the prospect of having to pay National Insurance on profits from rental income.
The Times today reports a government leak suggesting that if this happened, it would raise £2 billion for the Treasury.
Landlords of course already pay income tax on profits from rent, although some charges can still be offset against this.
National Insurance is currently paid on earned income from the age of 16 to state pension age. It’s payable on income over £242 a week or self-employed profits of more than £12,570 a year. It’s taxed at 8% for employed people and 6% for self-employed people. For income and profits over £50,270 it’s taxed at 2%.
This is just the latest property tax threat floated over the summer, ahead of this autumn’s Budget. Stamp duty reform and capital gains tax on principal homes have also been suggested, all aimed at raising additional income.
Prime Minister Sir Kier Starmer and some members of his government have gone on record as excluding landlords from the category of ‘working people’ – the group he says will not be subject to higher taxes.
In response to the NI threat, Sarah Coles – head of personal finance at business consultancy Hargreaves Lansdown – says:“The British love affair with property could be tested to destruction. The latest Budget rumour is that National Insurance could be payable on the profits from rental income. Property is already one of the least tax-efficient ways to invest, and by adding to the mountain of tax paid by landlords, it may persuade even more of them to sell up.
“Landlords already face an array of taxes.
“They pay extra tax when they buy the property, because there’s a surcharge on top of stamp duty. This was hiked last October from 3% to 5%. And that’s just the start of it. When an investor rents out the property, they also pay income tax on profits from rental income. They can subtract their costs and there’s 20% relief on mortgage interest, but landlords who pay higher or additional rate tax haven’t been able to claim full tax relief on their mortgage interest since 2017. Meanwhile, because the income tax thresholds have been frozen since 2021, it means more landlords paying higher rates and facing bigger bills.
“The tax pain continues when they come to sell, because there’s capital gains tax to worry about on investment properties. The annual allowance has dropped to just £3,000, and the rate is 18% for basic rate taxpayers and 24% for higher-rate taxpayers – and if the gain pushes you over a threshold you’ll pay some of this tax at a higher rate.
And there’s no way to mitigate this.
“It’s not just the tax eating into gains. There’s the cost of buying and selling property. Then there are maintenance and repairs to factor in, as well as periods when you can’t rent the property out. There’s also the hassle factor of dealing with tenants, and if you choose to cut that by using a management agency, you need to account for their fees too.”
This article is taken from Landlord Today